Litigation: Putting the business back in business litigation

A recent New York Times article reported on allegations that an international law firm had overbilled a client by overstaffing a bankruptcy litigation matter. As disturbing as such allegations are, the main challenge in-house counsel face is not a pernicious “overbilling” culture at law firms that represent them. Most law firm litigators are dedicated professionals who do, in fact, place their clients’ interests first. So why do litigation bills seem to operate in a world that is divorced from the budgeting realities of in-house counsel and their businesses?

Part of the issue is the way outside counsel’s success is measured. Although outside counsel and inside counsel spend more time than they used to on litigation budgets and billing arrangements, outside counsel are fundamentally driven by Vince Lombardi’s credo: “Winning isn’t everything. It’s the only thing!” With an ever-present focus on winning at trial, outside counsel will push to avail themselves of the multitude of discovery devices at their disposal and the broad range of documents and witnesses they can examine so that they will be as prepared as possible for the courtroom battle.

But, as we all know, most cases will settle. The question is when and at what cost, in terms of both a monetary figure for resolving the dispute and litigation expenses incurred to achieve that objective. With this business reality in mind, inside counsel can maximize their litigation budget by assessing at each stage of a case—particularly at the extraordinarily expensive discovery phase—not only what might be needed to win at trial, but also what steps can most cost-effectively alter the settlement dynamic and yield a faster and advantageous settlement.

Taming the discovery beast

The greatest challenge to controlling litigation costs is limiting the cost of document collection, production and review. The rules of civil procedure, which permit discovery into all information “that is relevant to any party’s claim or defense,” give outside counsel who seek to prepare for trial every incentive to overturn any rock that may be hiding evidence that could be useful when examining or cross-examining key witnesses. Unfortunately, whereas only 15 years ago, the review of relevant information could be limited to boxes of documents, now terabytes of data across email systems, computers, smartphones and elsewhere must frequently be reviewed—whether through keyword searches and temporary/contract attorney review or technology-assisted review such as predictive coding.

Are all these costs inevitable? The answer is that inside and outside counsel can actively work together to avoid getting caught in the discovery trap, or at least make the approach they take in discovery a conscious choice (consistent with certain obligations imposed by applicable civil procedure rules). Before undertaking any systemic review of documents—whether those to be produced or those requested of an adversary—both in-house and outside counsel should discuss ranges of possible resolution of the case, how various aspects of document review and production might affect those ranges and how costs could vary depending on the steps to be taken.

Some practical suggestions

Here are some questions inside and outside counsel should discuss to maximize the value of inside counsel’s litigation budget in the discovery phase of litigation:

What steps can and should counsel take to limit the number of custodians whose documents will be reviewed? Should parties seek an agreed-upon limitation? Would motion practice be useful to obtain greater proportionality between the scope of documents to be reviewed and the amount in controversy in the dispute?

How can counsel identify the most fruitful documents?

Should counsel seek mediation before a more thorough review or after an exchange of documents?

Are there shortcuts that counsel should take in terms of (a) the experience of a reviewer, (b) the percentage of collection that should be reviewed, or (c) the time periods when the most relevant documents are likely to appear?

Should counsel review only certain documents or take only certain steps to prepare for certain depositions?

There are no universal answers. Each case demands its own strategic analysis. However, as reluctant as outside counsel may be to forego maximum preparation and analysis, there are two litigation and business realities that they should not forgot:

Usually there are fewer than 50 documents that really matter in a case, regardless of its complexity. And frequently, inside counsel and key businesspeople can identify many of these documents early in a case. Inside and outside counsel should, therefore, undertake a risk/reward analysis before each foray into a new set of data to consider the likelihood that it will meaningfully add to the set of key documents the advocate needs to argue the case. Obviously, larger cases that involve greater financial and reputational exposure may warrant commensurate diligence to minimize the exposure. However, there should be no default position; inside and outside counsel should proactively decide whether to invest in additional discovery.

More than 90 percent of cases settle; therefore, much of the detail obtained for a case will never be used. Consequently, it will often make sense to tailor the level of analysis to the ultimate use. If a party need only find a few gems to alter the settlement range and leverage, perhaps it would be wise to defer more detailed review and analysis until it is clear that an advantageous settlement cannot be reached.

The challenge for litigation counsel – both inside and outside – is to find the right amount of discovery needed for each case. Each incremental investment into discovery should be intentional and proportional to the risks faced and rewards anticipated. Hopefully, by doing so, in-house counsel may be able to achieve comparable results with substantially reduced costs, thereby creating tremendous values for the business entities they serve.